145% cover at a nominal interest rate of 5.50% (all other products/rates)

I have shown below the rent now required based on borrowing £200,000 mortgage after funding a 25% deposit.

Borrowing

Nominal Rate

Coverage

Rent required

£200,000

5.50%

145%

£1329.16 (all other products/rates)

£200,000

5.00%

145%

£1208.33 (five year fixed rate)

The effect of this is that many buy to let properties cannot be purchased as the rental income generated will not be high enough to match the new criteria.

A possible way forward is to purchase your buy to let property via a Limited Company or Special Purpose Vehicle (SPV).

Rental Coverage Requirements on Limited Company Buy to Lets

For buy to lets now purchased in your in Ltd Co / SPV, the lenders now require rental coverage of :

125% at a nominal interest rate of 3.85% (Two years fixed).

125% at a nominal interest rate of 3.49% (Five years fixed).

I have shown below the rent required based on borrowing £200,000 mortgage after funding a 25% deposit.

Borrowing

Nominal Rate

Coverage

Rent required

£200,000

3.89%

125%

£802.08 (two year fixed rate)

£200,000

3.49%

125%

£727.08 (five year fixed rate)

Buying via a Limited Company / SPV gives the ability to purchase buy to let properties with lower rental yields.

You can find further information on how form a SPV / Limited company here and additional information on purchasing via SPV / Ltd Co here.

Taxation on Personal Buy to Let compared to Limited Company Buy to Let

Currently, personal landlords paying higher rate tax can claim tax relief at their highest tax rate. The effect on the new taxation is that tax relief can only be reclaimed at the current basic rate of 20% whatever tax rate you pay as a landlord. The tax rules are being phased in over 4 years starting in April 2017.

The effect of this is that if you are currently paying UK tax or will in the future, your tax bill will automatically increase.

Limited Company and SPV offer three tax incentives:

Limited Companies are not affected by the new mortgage interest relief restrictions starting in April 2017. Interest payments for limited companies is classed as a business expense and fully deductable against income

The profit made by the Limited Company is liable to Corporation tax at 20%. Reducing to 17% in 2020.

From April 2017 each director /shareholder has a tax free £5000 dividend income allowance.

Lenders

For Ex-Pat landlord clients buying on a personal basis we have access to 13 lenders and less onerous lending requirements.

Buying via a Limited Company / SPV is far more restricted. In time the choice of lenders should increase as there is little difference in risk as you give a personal guarantee to the Limited Company.

Limited Company/SPV applications are acceptable where you can evidence:

a credit footprint in the UK

pays UK tax or has declared income of UK tax purposes

at least one buy-to-let property in the UK

is employed by a multi-national employer or Sovereign entity

has written confirmation from their employer of their residential address in the foreign country and period or residency

UK bank account

UK correspondence address

provide the last 2 years SA100 and tax calculations

Please contact us for latest criteria

Solicitor and Accountant Advice

As this lending is more specialist we recommend you speak to a solicitor and accountant before proceeding. If you do not have your own solicitor or account or feel that they do not have the specialist knowledge, we can recommend one for you. They will happily discuss over the phone your options and the implications of buying via an SPV / Ltd Co.